You are on page 1of 67

i

[H.A.S.C. No. 11264]

ORGANIZATIONAL CHALLENGES IN
ACHIEVING SOUND FINANCIAL
MANAGEMENT AND AUDIT READINESS

HEARING
BEFORE THE

PANEL ON DEFENSE FINANCIAL MANAGEMENT


AND AUDITABILITY REFORM
OF THE

COMMITTEE ON ARMED SERVICES


HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION

HEARING HELD
SEPTEMBER 15, 2011

U.S. GOVERNMENT PRINTING OFFICE


68465

WASHINGTON

2011

For sale by the Superintendent of Documents, U.S. Government Printing Office,


http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center,
U.S. Government Printing Office. Phone 2025121800, or 8665121800 (toll-free). E-mail, gpo@custhelp.com.

PANEL ON DEFENSE FINANCIAL MANAGEMENT


AND AUDITABILITY REFORM
K. MICHAEL CONAWAY, Texas, Chairman
SCOTT RIGELL, Virginia
ROBERT ANDREWS, New Jersey
STEVEN PALAZZO, Mississippi
JOE COURTNEY, Connecticut
TODD YOUNG, Indiana
TIM RYAN, Ohio
PAUL FODERARO, Professional Staff Member
WILLIAM JOHNSON, Professional Staff Member
LAUREN HAUHN, Research Assistant

(II)

CONTENTS
CHRONOLOGICAL LIST OF HEARINGS
2011
Page

HEARING:
Thursday, September 15, 2011, Organizational Challenges in Achieving
Sound Financial Management and Audit Readiness ........................................
APPENDIX:
Thursday, September 15, 2011 ...............................................................................

1
19

THURSDAY, SEPTEMBER 15, 2011


ORGANIZATIONAL CHALLENGES IN ACHIEVING SOUND FINANCIAL
MANAGEMENT AND AUDIT READINESS
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Andrews, Hon. Robert, a Representative from New Jersey, Ranking Member,
Panel on Defense Financial Management and Auditability Reform ................
Conaway, Hon. K. Michael, a Representative from Texas, Chairman, Panel
on Defense Financial Management and Auditability Reform ..........................

2
1

WITNESSES
Architzel, VADM David, USN, Commander, Naval Air Systems Command ......
Fedder, Maj. Gen. Judith A., USAF, Director of Logistics, Deputy Chief of
Staff for Logistics, Installations and Mission Support, U.S. Air Force ...........
Smith, Martha, Director, Defense Finance and Accounting Services (DFAS)
Cleveland ..............................................................................................................
Stevenson, LTG Mitchell H., USA, Deputy Chief of Staff, Logistics, G4,
U.S. Army .............................................................................................................

4
5
6
3

APPENDIX
PREPARED STATEMENTS:
Architzel, VADM David ...................................................................................
Conaway, Hon. K. Michael ..............................................................................
Fedder, Maj. Gen. Judith A. ............................................................................
Smith, Martha ..................................................................................................
Stevenson, LTG Mitchell H. ............................................................................
DOCUMENTS SUBMITTED FOR THE RECORD:
[There were no Documents submitted.]
WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING:
[There were no Questions submitted during the hearing.]
QUESTIONS SUBMITTED BY MEMBERS POST HEARING:
Mr. Conaway .....................................................................................................

(III)

33
23
39
47
25

59

ORGANIZATIONAL CHALLENGES IN ACHIEVING SOUND


FINANCIAL MANAGEMENT AND AUDIT READINESS

HOUSE OF REPRESENTATIVES,
COMMITTEE ON ARMED SERVICES,
PANEL ON DEFENSE FINANCIAL MANAGEMENT AND
AUDITABILITY REFORM,
Washington, DC, Thursday, September 15, 2011.
The committee met, pursuant to call, at 8:00 a.m. in Room 2212,
Rayburn House Office Building, Hon. K. Michael Conaway (chairman of the panel) presiding.
OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE FROM TEXAS, CHAIRMAN, PANEL ON DEFENSE FINANCIAL MANAGEMENT AND AUDITABILITY REFORM

Mr. CONAWAY. Good morning. Thanks everybody for being here


at our hearing this morning for the defense management and
auditability reform panel. I would like to welcome today the folks
who are going to testify on the organizational challenges in achieving sound financial management and audit readiness.
In our first couple of hearings, we received testimony about the
DOD [Department of Defense] level and at the military department
level on the challenges faced in attaining audit readiness by 2017.
One of the primary challenges relates to DODs large and complex
organizational structure. DOD operations include a wide range of
defense organizations, including military departments and their respective major commands and functional activities, large defense
agencies and field activities.
Today we will hear from representatives from a military systems
command, logistics community and the defense agency providing finance and accounting services to DOD components. These organizations play a key role in DODs ability to improve its financial
management and achieve audit readiness.
Although you normally would not associate the acquisition,
sustainment, logistics communities with financial management,
military commands and these functional communities generate and
maintain financial activity that flows into DODs financial statements. For example, logistics systems used to provide tactical units
with information on maintenance and transportation of equipment
are the same systems used to provide asset information for reporting and financial statements. Without proper controls within these
functional communities, DOD will not be able to achieve
auditability.
The Defense Finance and Accounting Service provides financial
accounting services to the DOD components. In fiscal year 2010,
(1)

2
DFAS [Defense Finance and Accounting Service] processed 169 million pay transactions, paid 11.4 million commercial invoices and
disbursed $578.0 billion. Since their activities are so integral to the
financial activity reported in the DODs component financial statements, challenges faced at DFAS must be addressed in order for
DOD to progress towards auditability.
During these times of resource constraints and budget cuts, it is
imperative that the Department of Defense have reliable, useful
and timely information for decision making. Therefore, it is critical
that all DOD organizations within and outside of the financial
management community work together to achieve effective fiscal
management.
I would like to thank our witnesses for taking the time out of
their schedules to be with us this morning. First up this morning
will be Lieutenant General Mitchell Stevenson from Deputy Chief
of Staff, Logistics, G4, United States Army; Vice Admiral David
Architzel, Commander, Naval Air Systems Command; Major General Judith Fedder, Department of Logistics, Deputy Chief of Staff,
Logistics, Installations and Mission Support, U.S. Air Force; and
Ms. Martha Smith, Director of Defense Finance Accounting Services, Cleveland.
I will now turn to my colleague to sub Joe Courtney for an opening statement, if he chooses.
[The prepared statement of Mr. Conaway can be found in the Appendix on page 23.]
Mr. COURTNEY. The Admiral appreciates that moniker. Thank
you, Mr. Chairman. And again, just to save time for the record, Mr.
Andrews prepared an openingwell, there it is. The man is here.
I will yield to the gentleman from New Jersey, Mr. Andrews.
STATEMENT OF HON. ROBERT ANDREWS, A REPRESENTATIVE
FROM NEW JERSEY, RANKING MEMBER, PANEL ON DEFENSE FINANCIAL MANAGEMENT AND AUDITABILITY REFORM

Mr. ANDREWS. I thank my friend from Connecticut for his brilliant statement and apologize to the chairman for being late. We
appreciate the witnesses being here this morning.
I am looking forward to this mornings hearing because I think
it takes us another level downI dont mean that in a judgmental
senseanother level of specificity in our mission. The chairman
began the hearings at the DOD level. We talked about the department-wide effort to reach the auditability goal in time. We then
went to the service level last week and heard about the plans of
the services, and I think we have assembled before us this morning
ladies and gentlemen who will execute the service plans because
they are dealing with the actual stuff. You know, how much rolling
stock we still have left in Iraq and Afghanistan, as the General and
I spoke about the other day, that you cant have good auditable financial statements if you dont have a good control and data information system. And I think we are talking to some individuals this
morning who do that very well.
So, Chairman, thank you for this next step in our process. I look
forward to the hearing. Thank you, Joe.

3
Mr. CONAWAY. Rob, thank you. General Stevenson, you are up.
Thank you.
STATEMENT OF LTG MITCHELL H. STEVENSON, USA, DEPUTY
CHIEF OF STAFF, LOGISTICS, G4, U.S. ARMY

General STEVENSON. Chairman Conaway, Ranking Member Andrews, rather than read my opening statement, I would ask that
it just be admitted to the record.
Mr. CONAWAY. Without objection.
General STEVENSON. And then I will quickly summarize just a
couple of the key points within it.
As the senior logistics staff officer in the Army, I can assure you
that we logisticians fully understand the importance of auditability
and, in fact, are working closely with our teammates in the financial management community to help the Army get there. Two key
areas that we are working on are property accountability and modernizing our entire logistics automation enterprise from foxhole to
factory.
First in the area of property accountability. As you can imagine,
maintaining detailed property accountability like we do in peacetime is difficult at best while fighting two wars. So last July our
Army Chief of Staff launched a property accountability campaign
to help focus the entire Army on ensuring that we operate within
a culture of stewardship and supply discipline. I would be happy
to elaborate on the details of that during the Q&A.
As I am sure you appreciate, accountability requires senior leader participation at every level. So we use the Armys inspection and
audit agencies to ensure compliance. We have assigned senior chief
warrant officers to logistics staffs to provide oversight to both commanders and unit supply personnel, and we have caused there to
be a significant increase in command supply discipline inspections
Army-wide. We are getting after it.
Second, in the area of logistics automation, we are in the process
of implementing the Global Combat Support SystemArmy based
on a proven commercial product, in fact the business markets leading software in integrated maintenance, supply and financial accounting. Logistics transactions such as the acquisition of capital
property, the performance of maintenance, the receipt, storage and
issue of supplies will be linked to their financial consequences at
the transaction level. This will be a first for the Army, and it will
be key to establishing auditable business processes. We have the
system fully deployed in the 11th Armored Cavalry Regiment in
Fort Irwin in California. Next month we will test it at Fort Bliss
in Texas. And starting next summer, we will begin fielding Armywide active, National Guard and Reserve, a total of 160,000 users.
GCSSArmy [Global Combat Support SystemArmy] will help
make auditability a reality for the Army and we project it will save
us a considerable amount of money in the outyears. Related to
GCSSArmy, we also now have fully fielded something called the
Logistics Modernization Program, which is the logistics system we
use at the national level in our depots and arsenals and ammunition plants. It is based on the same leading commercial software
as GCSSArmy, enabling an easy exchange of information between
the two systems without costly interfaces. It is now fully deployed

4
throughout the Army Materiel Command to 25,000 users and is
helping us more accurately capture data associated with the $24
billion inventory and two million in daily transactions that are performed at that level of the Army. LMP [Logistics Modernization
Program] will enable the entire business area at the national level
to also be auditable.
Together, these systems, along with the General Fund Enterprise
Business System and a continued commitment to improving property accountability will enable the Army to better trace logistics operations costs and provide transparency. We will have more confidence in our data and will be able to make more informed decisions, thereby reducing waste and saving the taxpayer money.
We are pretty excited about it, and I look forward to your questions.
[The prepared statement of General Stevenson can be found in
the Appendix on page 25.]
Mr. CONAWAY. Thanks. David.
STATEMENT OF VADM DAVID ARCHITZEL, USN, COMMANDER,
NAVAL AIR SYSTEMS COMMAND

Admiral ARCHITZEL. Congressman Conaway, Congressman Andrews, members of the panel, good morning. Thank you for the opportunity to discuss the Naval Air Systems Commands efforts in
achieving and sustaining audit readiness. Mr. Chairman, I appreciate turning this ship into the wind right on time and going to the
launch at 0800. That is impressive, sir. I appreciate that.
As a Commander of Naval Air Command of about 37,000 people
all told and about $45 billion per year in TOA [Total Obligation
Authority] and approaching about 289 over the FYDP [Future
Years Defense Program], I am personally committed to the Navys
financial improvement initiatives. Achieving and sustaining audit
readiness by standardizing financial processes to provide accurate
and auditable information that supports program execution decisions is one of my top priorities. NAVAIRs [Naval Air Systems
Command] financial improvement program and business process
standardization efforts are being led by accounting and financial
management experts with the strong support from functional experts across my command in multiple business process areas, to include acquisition, contracts, logistics, human resources, corporate
ops.
To support the Department of Defense efforts at achieving
auditable financial statements, NAVAIR is performing an assessment of the E2D Advanced Hawkeye Program. The goal of
NAVAIRs E2D MDAP [Major Defense Acquisition Program]
project is to demonstrate financial stewardship of funds allotted for
a major acquisition program and assess the audit readiness of the
Navy Enterprise Resource Planning, or ERP, environment related
to business processes. We are on track for completion of our assessment at the end of September this month.
The NAVAIR team is taking lessons learned from the E2D
MDAP effort and developing an audit readiness strategy to deploy
across the command over some 110 other MDAP programs. This
strategy will stress the importance of internal controls, compliance
with regulations, maintaining an audit trail and other concepts

5
that will contribute to NAVAIRs ability to achieve and sustain
audit readiness. NAVAIR is leveraging Navy ERP to strengthen internal controls, enhance standardization, and improve the quality
of information available to our decisionmakers.
Having implemented an ERP pilot, which was entitled Sigma
back in 2002, NAVAIR is a second generation ERP user and has
significant experience with Navy ERP and relies on the system for
all of our business operations, including project planning, funds
execution, funds validation and support of procurement and contracting, training and awards processing, time and attendance, accounting and external financial reporting. The implementation of
Navy ERP has provided increased fidelity of our financial data,
providing our program managers timely insight into program execution and the ability to track dollars committed, obligated and expended and give program managers and field teams increased visibility in the interdependencies of program costs, schedules, resources and risks.
NAVAIR supports the Navy, DOD and congressional direction to
improve the quality of financial information and business processes
necessary to achieve clean financial audits by 2017. I am and, more
importantly, my entire command is committed to achieving these
initiatives and believe that the resources invested will produce a
significant return on investment to the warfighter and the American taxpayer.
I look forward to your questions, sir.
[The prepared statement of Admiral Architzel can be found in
the Appendix on page 33.]
Mr. CONAWAY. Thanks, David. Judy.
STATEMENT OF MAJ. GEN. JUDITH A. FEDDER, USAF, DIRECTOR OF LOGISTICS, DEPUTY CHIEF OF STAFF FOR LOGISTICS, INSTALLATIONS AND MISSION SUPPORT, U.S. AIR
FORCE

General FEDDER. Mr. Chairman, Mr. Andrews, distinguished


members of the panel, thank you for the opportunity to appear before you today to discuss several issues that are important to your
United States Air Force sound financial management, audit readiness and responsible stewardship of taxpayer dollars.
The Air Force logistics community is fully engaged in supporting
and achieving financial improvement and audit readiness compliance by 2017. Our plan to meet that timeline involves evaluation,
discovery and mediation of the many facets that affect audit readiness. We are making progress on that plan by ensuring established
inventory controls and equipment accountability processes produce
the maximum combat capability from each taxpayer dollar and
equip our warfighters with the critical assets required to support
operational demands. We are also implementing corrective actions
where necessary to ensure assets are recorded in the appropriate
accountable system of record, valued at the correct amount and
that assertions for existence and completeness are timely and accurate.
The value of audit readiness is more than financial. It is fundamental to what we do every day across the Air Force logistics enterprise that enables us to responsibly procure, store and issue in-

6
ventory and equipment that contributes to our mission. We are reinforcing that message with operational units at every level to ensure that all airmen are doing what it takes to achieve a clean
audit.
Mr. Chairman, Mr. Andrews and distinguished members of the
panel, it is an honor to be here today. Thank you for your interest
and engagement on this important effort as we work towards audit
readiness in 2017, and thank you for your continued strong support
of our airmen and their families.
I submitted a written statement for the record, and I look forward to the question-and-answer period.
[The prepared statement of General Fedder can be found in the
Appendix on page 39.]
Mr. CONAWAY. Thanks, Judy. Martha.
STATEMENT OF MARTHA SMITH, DIRECTOR, DEFENSE
FINANCE AND ACCOUNTING SERVICES (DFAS) CLEVELAND

Ms. SMITH. Chairman Conaway, distinguished panel members, I


am pleased to be here to discuss the financial services DFAS provides the Department of Defense and the complexity involved in
providing those services. I will discuss our efforts to get DFAS as
a service provider to the DOD to an audit-ready state by fiscal year
2017, as well as discuss how we are helping our customers meet
their assertion goals. I am providing detailed information on this
issue in a statement for the record.
DFAS provides centralized payroll and commercial payment and
financial reporting services for the military and its civilians. We
also provide the summary level financial reports Congress uses to
monitor the financial health of the military services. To illustrate
the complexity of our work, all financial reporting begins with a
single transaction. It can be as simple as a DOD civilian inputting
their time and attendance or as complicated as defense officials
drafting a multi-million dollar contract for a major weapons system.
Each of our 169 million pay transactions for fiscal year 2010 had
an associated line of accounting. Consolidated into 1,129 active
DOD appropriations, each transaction must be reflected in over 255
million general ledger accounts.
Just as an example of the complexity, the current Black Hawk
Helicopter Program consists of three contracts. Funding is distributed among several services and foreign military sales. Since the
original contract award, there have been almost 1,700 contract
modifications and we have made approximately 22,000 payments
for nearly $7.8 billion. Since fiscal year 2009 alone, DFAS has received approximately 211 monthly invoices for disbursements averaging $188.0 million per month.
Nearly all DOD transactions make their way to one of our many
systems, some owned by the services but used by the DFAS employees. Employees create or monitor the transactions, validate authenticity and accuracy, consolidate the transactions into reports
and validate the accuracy of those reports. We project DFAS will
disburse approximately $668.0 billion in fiscal year 2011. Additionally, each month we reconcile approximately $100.0 billion worth

7
of transactions, $85.0 billion in disbursements and $15.0 billion in
collections.
Our legacy systems are originally designed to provide local level
management reports and summary level information used to prepare financial statements. Over the years, much of the transaction
processing a statement preparation shifted from the services to
DFAS. It is a challenging effort. And added to the mix are the new
ERPs, Enterprise Resource Planning systems, used by the local
level commands, produce financial information for the programs.
The ERPs provide a level of discipline and standardization that is
extremely beneficial to DODs audit efforts and internal controls.
However, a massive amount of data is still fed into the ERPs from
the legacy environment since the ERPs do not process all types of
transactions such as military pay and civilian pay.
Visibility and traceability of transactions is integral to any audit.
So we are working hard to ensure our processes are audit ready.
DFAS efforts to standardize and strengthen internal controls began
20 years ago. Since 1991, we have reduced our footprint from 300
to just 10 sites and standardized our day-to-day activities in improving and eliminating systems. By consolidating field level accounting and finance functions into our financial reporting entities,
we have a better opportunity to standardize processes and data
and to fix problems at the source.
DFASs most valuable asset is our people, and we have made investments to strengthen our workforce. Today, 85 percent of our accountants have degrees. Since 2007, we have seen an 88 percent
increase in the number of certified public accountants and certified
management accountants and a 322 percent increase in project
management professionals and their certifications.
To support customers audit efforts, we have mapped processes,
implemented control points, tested internal controls and mitigated
risk for many key processes. We use the overarching principles
from the DOD Financial Improvement and Audit Readiness Plan to
ensure audit readiness is focused on day-to-day activities, that a
proactive approach is used for correcting deficiencies and our improvement initiatives are sustainable.
Our goal is to be prepared when the customers assert on specific
parts of the financial statements. We also must be prepared for examinations of the services we provide customers that contribute to
their assertion schedules. We have established audit readiness
teams to provide realtime support during pre-assertion preparation
during the audit and post audit.
We have partnered successfully with the Marine Corps and identified improvement initiatives which we can replicate for the other
services, And we are establishing a senior steering committee to
proactively implement lessons learned from all audit findings.
DFAS is walking in concert with our customers, expediting improvement initiatives, addressing systems challenges, and moving
toward audit readiness and the goals established by DOD and Congress.
The support of our senior most leaders, involvement of every employee in the process, and the continued collaboration with our customers are all key to our success.

8
Chairman Conaway and distinguished members, thank you for
your time today, and I look forward to your questions.
[The prepared statement of Ms. Smith can be found in the Appendix on page 47.]
Mr. CONAWAY. Well, I thank the witnesses. This may be a record,
four witnesses doing their statements in less than 20 minutes.
Thank you very much. We will endeavor to stay on the 5-minute
clock as well. And with just four of us, we may get to go more than
just one round. I appreciate everybody being here, and thank you
very much for having it.
The top layer of folks have talked about putting in place performance evaluation measures for people who are responsible for making this happen and then holding them accountable to those standards. Can you give us a quick couple of sentences about each of
your four organizations and how you are making sure thatthe
wonderful things you said, Martha, are spot on, but unless you
track it, unless you hold folks accountable, it is not going to happen. So could you talk to us about how the uniform as well as the
civilian personnel, how you make sure they have got the right incentives in place and that we measure thoseprogress?
General STEVENSON. Sir, I think you sort of alluded to it. The
Secretary of the Army has directed that starting in fiscal year 2012
and forward, all senior leaders involved in both logistics, finance
and those things necessary to get us auditable will have a requirement to have in their appraisals the measures of their performance
in toward meeting that goal. They will be rated on how well they
supported the goals. I think that will be enormously motivating.
Mr. CONAWAY. Okay. David.
Admiral ARCHITZEL. Mr. Chairman. It is very similar on the
Navy side. Today if I was to look at my senior executives who has
a performance evaluation that goes into maintaining audit readiness or these kind of things, today I would say it is probably my
comptroller. But starting in fiscal year 2012, anyone that is involved in generating a financial transaction is going to have accountability within their senior executive performance appraisals.
That will get down to deputy PO [petty officer] levels who are
clearly responsible for generating transactions or into the many
people that go within that as well.
On the admiral, sort of the flag side of the house, I would tell
you that our Vice Chief has been very clear with the series ofdirecting memos about we will take this serious across our flag community to make sure that it is also brought home on the military
side. So it is reflected in our evaluations and fitness reports as we
go forward there as well, sir.
General FEDDER. Mr. Chairman, the Under Secretary of the Air
Force and the Vice Chief of the Air Force sent a note out to all of
the major command commanders, those operational commands, the
four-stars that really have the airmen that are touching the systems and directed that both from a functional side that the performance plans of our senior civilians include specific performance
measures associated with financial improvement audit readiness.
And those measurestheir performance will be measured in that
regard.

9
On the command side where we have airmen that are out there
that are effecting the inventory precision and doing things that are
also going to contribute to audit readiness, they have also emphasized to major commandersmajor command commanders that it
is important for commanders at all levels to understand the importance of achieving these. And the measures overall that we expect
to see to the effectiveness of this very heavy senior leadership involved in this will be the continued success that we have when we
assert existence and completeness, for instance, as we continue
down with our FIAR [Financial Improvement and Audit Readiness]
execution plan.
Ms. SMITH. Most all of the components associated with becoming
audit ready are an integral part of our overarching strategic plan,
and we have pushed our plan down into our performance appraisals for all of our employees, all the way down to the lowest levels,
trying to inculcate that culture of audit readiness into what we do
on a day-to-day basis.
Mr. CONAWAY. Rob and I will look forward this time next year
to visiting with a variety of folks just to see how well that has
worked and if deadlines were missed and those kinds of things if
we are able to make that happen.
Rob, 5 minutes.
Mr. ANDREWS. Thank you, Mr. Chairman. Thank you to each of
the witnesses for a very thorough and good job.
Ms. Smith, I really concur with your comment about personnel
being the key to making these audits available. When, God willing,
the economy turns back up and accountants can go into the private
sector, what kind of inducements do we have to retain the talent
that we have at your agency in the public sector? What are the incentives and advantages to do that?
Ms. SMITH. Well, I think the security that we provide the employees has been extraordinarily beneficial and we have seen a lot
of employees recently coming in from outside industry looking to
the government for a good secure type of job. The incentives that
we use, we have a very comprehensive award program that we
have across DFAS in terms of even down at the lowest level on
passing awards between employees. But we strive to again keep
the audit readiness at the top of our strategic goals. And so therefore, we are looking for all types of innovation and incentives to ensure that we
Mr. ANDREWS. You certainly made impressive gains in the preparation and quality of the workforce. We certainly want to protect
that investment.
General Fedder, I am impressed by the degree of intensity the
Air Force has given to corrective action. It looks like at the highest
levels, there is weekly, as I understand it, reviews of what is going
on. Can you tell us an example of a couple of corrective actions that
you have had to follow up on and what you have done to follow up
on them?
General FEDDER. Yes, sir. Mr. Andrews, when we proceeded to
assert spare engines, for instance, as one of our operating materials
and supplies, we did identify that there were some gaps in our policies associated with inventories and how we report the spare engines through this process. And so we went back and had to iden-

10
tify a clarification and changed a policy in the reporting process of
those spare engines.
Mr. ANDREWS. Does that mean it was possible that we reported
more spare engines than we really had or we missed them? What
does it mean at the practical level?
General FEDDER. In this case, we identified that about 30 percent
of the units were not properly reporting the inventory of spare engines and there wasnt the catch in the system that we would have
expected to identify that there was
Mr. ANDREWS. This is a perfect example of why we have this
panel. And I commend the chairman and ranking member for creating it. It is possible that if you didnt fix that problem, it is possible that we would have made a financial decision to purchase
more engines or more parts when we actually had them. So you
buy something you dont need. The opposite is true, by the way,
that we might erroneously believe we have spares and we dont and
not have the readiness that we should. So keep up the good work.
Admiral, I know that there was an ERP pilot in the Navy in
2002. I wonder what the most important lessons learned were from
that pilot and how you have applied them to this broader effort
that you are engaged in now.
Admiral ARCHITZEL. Thank you for the question, sir. In 2002, one
of the pilotsthere were several pilots in the Navy. NAVAIR had
one of them and it was called Sigma. It was a first generation ERP
system. In that ERP system, it allowed us to get financial visibility
across all of our programs. So you had the ability to take our data
input from PBUSE [Property Book Unit Supply Enhanced] or our
budget inputs and it would come down to line item disbursement
through appropriations and right down into accounts. So program
managers had the visibility without having to manually enter that
data and continue then to verify and do a lot of manual rework.
And that creates errors. Any time you have variation in process,
that is not a good thing.
Mr. ANDREWS. So you are able to reduce those errors by
Admiral ARCHITZEL. Absolutely. Yes, sir. And over the time, approximately 260 man-years in terms of what I would say would be
in our experience with ERP, we eliminated in Sigma, which was
the first generation ERP, about 55 legacy programs. And since we
have incorporated to Navy ERP, it has been about four.
Mr. ANDREWS. What was the reference to 260 man-years?
Admiral ARCHITZEL. Man-years. Reduction in man work to do the
kinds of things I am talking about, about tracking dollars, about
validating and verifying
Mr. ANDREWS. In other words, one person working for 260 years
would have had to do these tasks and now you have eliminated
that?
Admiral ARCHITZEL. Yes, sir.
Mr. ANDREWS. We should try that around here, Mike.
I am going to ask for a second round if we have a chance because
I did have a question for General Stevenson, but I am going to
yield back at this point. If we could do a second round, I would appreciate that. Thank you.
Mr. CONAWAY. Steve, 5 minutes.

11
Mr. PALAZZO. Good morning. Thank you all for being here to continue our conversation on such a very important issue. I think from
a lack of attention in the past there is a reason why we are here
again today and be here probably next year. But really, I am excited about the improvement that we have made in addressing
these issues. Last week I was kind of more focused on, you know,
the sharing of information between the DOD services and the agencies.
And, Ms. Smith, you mentioned taking the lessons learned, having an after-action review and then sharing them with our partners
across the DOD industries and other logistics in air and DFAS.
Can you all just shareI am kind of wanting to know, one, is what
has been some of the major obstacles or hurdles to achieving audit
readiness, as well as, you know, maybe just some success stories?
I think you all mentioned some of them, it has been answered. And
also just your lessons learned. And how are you going about sharing your information with the other branches and other services.
Ms. SMITH. I can start. We learned a great deal from our efforts
that we have done with the Marine Corps audit. One of the areas
that we were focusing on is how do you reconcile all of this data.
We receive data from the legacy systems. We will be receiving data
from the ERPs, et cetera. So how do you give the visibility of that
data to the auditors? Through the Marine Corps audit, we realized
we had to give visibility of that data all the way from the beginning of the transaction all the way through to the financial reports.
So we have created reconciliations across the board for all of the
services and we are working on systems that will help us do that
and be able to show the auditors that this transaction can flow all
the way from the financial statements back to the source. And we
can retrieve that source documentation for them. Those are some
of the big ones.
But we have a steering committee that we are setting up that
goes across the board on lessons learned so we can as a DFAS entity, we can help all the services with that.
General FEDDER. Sir, as we have progressed with our plan to
achieve audit readiness, some of the things that we have seen as
a success story is the value of data cleanup within our systems.
And frankly, we learned this from some of our fellow service efforts
that are a little bit farther along in the Air Force in some cases.
But we have seen that in order to be able to use legacy systems,
for instance, those systems that we have now that are not under
an ERP, the value and necessity of making sure that the information that we put into our logistics systems for things like inventory
management and accountability have got to be very exacting and
that before we can really achieve a clean audit in a lot of those systems we need to go back and ensure the accuracy of that data.
That is one of the things that we continue to work on as we adapt
our legacy systems and we mediate those systems to make sure
that we can achieve the audit. Some of the obstacles that we have
identified so far are specifically within those systems.
As has been mentioned by one of my panel peers, the use of the
systems that are not under an ERP tend to be very personnel intensive because of the fact that our systems dont talk to each
other. We have inventory accountability systems that are not nec-

12
essarily linked all the way in an end-to-end business process. And
that requires a lot more manual labor to make sure that we can
provide that exactness associated with an audit.
Admiral ARCHITZEL. Congressman Palazzo, thank you for the
question. As you look at the value of what we have for this effort
in terms of what it is, I would say one thing for me as a commander, it is a team sport. And I think we have toI have been
tryingI am driving that home throughout the command because
we wont succeed if it is just a comptroller viewed activity. And it
is not. So if you look at every process that we have that generates
a financial transaction, there are people that are in contracts, that
are in engineering, that are in testing that contribute to that efficacy of that process.
So what we are doing is taking every one of these areas where
we generate a financial transaction and end-to-end processing, look
at the business processes that go with it, look at the controls that
are in place to control that process, find out where we are not in
control and then do something about it.
There are examples of that I would give in civilian pay where we
had thingswe were recording our civilian pay and we knew what
was going on, but we actually found what we didnt have was the
actual ability to ensure that how do we reconcile that within, say,
if there is not accounted for civilian pay. It was done differently in
different areas of my organization, different competencies. We have
standardized that now. And by doing that, we have a standardized
business process which is key to it. So our financial improvement
process is important. It feeds into the overall ability to say we are
ready financial, audit readiness. But above everything else, command involvement and command participation throughout the
process.
Mr. PALAZZO. Thank you.
Mr. CONAWAY. Joe, 5 minutes.
Mr. COURTNEY. Thanks, Mike. General, your testimony was really impressive in terms of actually, you know, just coming out and
saying that you anticipate $8 billion in savings with this new system starting in 2017, you know, which sort of takes this thing out
of just thesort of the theoretical and into real numbers, which obviously is important to everybody in this committee who has been
going through these hearings on the challenges facing the Pentagon
coming up.
Can you talk a little bit about, you know, whatwhere does that
come from? Is that, you know, waste, fraud and abuse? Is that, you
know, other ways that you can feel comfortable projecting that savings?
General STEVENSON. Sure. It comes from a number of different
locations, but probably the one that is I think the easiest to understand is we will not have to do so much reconciling between separate instances. Today the architectureand I was going to, sir, answer your question if it had gotten to methat our biggest problem
has been our architecture. We have got stovepipe systems at each
of our echelons that have to then pass the data at end-of-day processes. And if the communications somehow get interrupted in part
of thatand if you can imagine doing that in Afghanistan or Iraq
then maybe there is pieces of that data you are missing, you are

13
losing or it posts afterbecause data is important to be posted in
a time sequence manner. And so you end up having to have lots
of people at each of the echelons and in the financial community
trying to match the receipts, the issues, the cancellations, the
changedid it get charged against the ledger, did it not get
charged against the ledger. All of that is going to go away in our
ERP system because it will all be a Web-based system operating
off of a single database and so that there is no need to reconcile
anything. And all of that I think is going to go away and that will
be a huge part of what we save.
Mr. COURTNEY. I mean, that sounds like actually a fairly modest,
you know, prediction on your part because you are not sort of getting into other ways that you may pick up, you know, duplication
or waste or whatever, I mean. So I guess we have got nowhere to
go but up from that $8 billion figure assuming you have got a really high functioning system. Is that a safe statement to make?
General STEVENSON. I think so. And of course there is costs associated with implementing the system. So what we have tried to do
is figure out through a business case what is the net savings to the
Army. We think our payback starts in 2019, that we will have paid
for what we have done in just that short period of time.
Mr. COURTNEY. Admiral, you have been nodding your head. I
dont know if you want to chime in.
Admiral ARCHITZEL. I couldnt agree more with thethe ERP for
us within 10it is really acquisition financial management. When
you get to 11, that is our single supply system. So when we get
into thatby having that across the Navy, if you will, in our
SYSCOMs [System Commands] and into the NAVSUP [Naval Supply Systems Command], we then have visibility on all of our supply
pieces and parts, which is the first time you can actually see end
to end. You want to see an F18 all the way down from when it
is on the flight line to the parts that are supported and needed and
where those parts are and where they exist, and that would reduce
sparing, it would reduce warehousing. That is where you will get
significant savings from ERP, above and beyond that which you
getand I mentioned beforethe business end of doing accounting
and reconciliation which is on the 10 piece. So I think it is a tremendous one in there.
I do have some concerns and that would be, you know, in terms
of it is not a simple thing to do to take the inventory today and
map them into ERP. It is a very time consuming effort to go forward. We are in a phased approach to do that, And I know we will
get there. But it is not a given that it will be a simple bill, but it
is well worth the effort in doing that.
Mr. COURTNEY. And in terms of, you know, trying to get the resources there to get that transition doneI mean, Admiral
Roughead has talked about, you know, the fact that withagain
some of the cost savings and efficiencies that the Navy needs to
find, that a lot of personnel are going to be sort of being moved
closer to the waterfront and out of sort of, you know, offices. Is that
going to kind of create a challenge in terms of that? Or is that
something that you think the Navy can handle, assuming again
people are being deployed a little bit more in frontline positions?

14
Admiral ARCHITZEL. Well, personally I think we need to move
people closer to the flight line. That is where the activity is. That
is where our support is to the warfighters, at the tip of the spear
if you will. So I am an advocate for thingsin our FRCs [Fleet
Readiness Centers], for example, about moving those assets closer
to the flight line, about being able to have them spread to where
our fleets concentration areas are. So I think that is a proponent
of it.
There is an inherent problem in how we did contracting before
in some areas when you get into supply systems. If I was to look
at a previous contract, you would see there would be a line item
that would say spares. And it would have, who knows, 800 spare
items that would be listed, but they would be listedand that was
just one line item in there that says spares under an equipment
line item number. Within that and made an appendices to that
would be handwritten inventories that goes with those spares. To
go forward in the ERP, what we need to do under improving the
system would be to break those out into individual line items that
come right downand you can call out then. And then from the
day you award that contract, you can track that spare from contract awardDFAS can track it, we can track it, supply systems
can track them all the way through. And that is what will eventually lead to the ability to do the things like valuation and configuration management and accreditation.
Mr. COURTNEY. Thank you.
Mr. CONAWAY. We will do a second round if everybody has questions.
Human nature is such that you are comfortable with doing
things the way you have done it in the past. And you have all
talked about legacy systems. And there is a tension because all of
this change you are doing isyou dont get to take a year off from
everything else you are doing in order to make this happen, you
have got to continue to provide whatever data you have been providing at the exact same time. But you dont get to double your
workforce to do this. You just have toeverybody has to do it. So
there isI have observed in the pasta tendency to hang on to
stuff longer than you needed to.
We have talked to the other folks about this as well. How best
do you track the demise of legacy systems and all of the associated
costs that go with just maintaining those and the extra work that
is associated with that? How do you trackdo you have a plan that
says at the end of the day we are going to have all of these legacy
systems that are going to be gone so that you know and from our
oversight standpoint that we will know that you are down to just
those systems that are needed and necessary to make this thing
work and we are not clinging to something because it is just an old
comfortable pair of shoes that work?
Martha, do you want to start?
Ms. SMITH. Sure. Within the DFAS walls, we have eliminated a
lot of systems over the years. And we are seeing the benefits of the
ERP. And believe me, we would like to see the legacy go away as
fast as possible. However, we have been dealing with the legacy for
a long period of time. So in terms of the data flows, we have got
that pretty well nailed down and then we are, you know, adding

15
the ERP stuff to it. But within the DFAS systems, we have eliminated a lot of systems. We have tracked that. And we are pretty
comfortable with the new systems that we have in place now. So
I think we are moving along in the right direction in that area.
General FEDDER. Mr. Chairman, frankly I dont think that there
is any tendency in the Air Force logistics community to want to
hang on to those legacy systems when we have the opportunity to
transition to something like an ERP, specifically for the Air Force,
the expeditionary combat support system. We have seen in the
pilot of ECSS [expeditionary combat support system], although that
hasnt yielded as much information as perhaps the other service
ERPs have yielded so far, but we have seen the value in being able
to better provide that total asset visibility.
So for the airman at the unit level who is responsible for receipt,
proper storage and accountability of spare parts, for instance, that
airman can easily see through the ERP system and the way that
system is going to provide connectivity with all our systems. They
can see the value of the workload that is reduced associated with
that in delivering a better product to the warfighter.
Admiral ARCHITZEL. Mr. Chairman, it is a great question and it
is not an easy one. Let me just try and say that on the outset, certainly legacy systemsI think personally we need to look at legacy
systems in a way that some legacy systems are not all bad. We
need to understand what they are and not just make this blanket
statement that all legacy systems are bad. Let me explain.
When I talked about Sigma, we came on ERP in Navy, NAVAIR,
we had about 55 systems retired. And those were principally in financial management areas we could do that. Since we have been
on ERP, one of those systems we retired actually is Sigma. So there
has been four. The Navy is on trackI believe the number is 196
retired legacy systems with about 14 done to date. But when you
look at what it isI would say that in the area of NAVSUP, for
example, they retired legacy systems that were based on
FORTRAN [IBM Mathematical Formula Translating System] and
those kind of things. They needed to be retired. There are going to
be tremendous savings. But I look at todayyour point is a good
one. I have to operate today and provide direct support to the fleet
out there, to the Hornets that are on station, the 60 Romeos
[MH60 Seahawk helicopters] that are out there and know what is
their configuration, what is their ECPs [engineering change proposals], what do they need, know what their health and management systems are. I have vehicles today to do that. They could be
supplanted or taken over into an ERP system. We need to carefully
evaluate what the costs are to do that and what the true benefit
is of that. So there is a place when we do this in a metered fashion,
not just to say blanketly we are going to get rid of every system.
Mr. CONAWAY. But you have got a plan to track that?
Admiral ARCHITZEL. Yes, sir. Absolutely.
General STEVENSON. Sir, I have been appointed the logistics domain owner for all logistics systems in the Army. We started out
with over 800 different systems, some small, some large. And my
goal is to reduce them down to our ERPs. And as of the lastI do
a quarterly review. As of last review, I think we are down to about

16
160. I also control the dollars that sustain those systems. So it will
be very easy, I think, to enforce discipline in getting rid of them.
Mr. CONAWAY. Thanks. Rob.
Mr. ANDREWS. Thank you, Mr. Chairman. General Stevenson,
thank you for your testimony. I also wanted to explore, as Mr.
Courtney did, the genesis of this $8 billion savings estimate. Could
you walk us through how you derived that projection?
General STEVENSON. Yes, sir. It comes from a number of components. One is inventory reduction. We think that there is about
$2.0 billion worth of inventory reduction we can get to by having
visibility over what we have got, being able to move it around and
not have individual entities buying their own.
Mr. ANDREWS. Let us not have more than we need?
General STEVENSON. Exactly. There is reorder costs that go on
because they are not sure whether what they have got on order is
coming to them because they dont have visibility of where it is. It
is kind of the Amazon.com capability that we lack today in the
Army.
Mr. ANDREWS. If this works with teenage girls, let me know because we can try it at our house, too.
General STEVENSON. It is an area of concern. And I just last
week had a large meeting withthe RAND Corporation is doing
some work for us on excessexcess orders we are generating. And
a lot of it comes from lack of confidence. I talked about the component associated with reconciling records at various levels. And it is
a combination of all of those things and some others that I cant
recall off the top of my head that contribute towards this business
case that says by 2019 you will have paid for.
Mr. ANDREWS. Is the $8 billion over what period of time?
General STEVENSON. Through the life of the system, through 10
years.
Mr. ANDREWS. So roughly 10 fiscal years. Let me ask sort of a
very basic question to each of you from the Services.
General, if I wanted to know how many radio parts existed for
a certain airplane today and I needed to find one, how quickly
could your group find that part and know how many that you had?
Say we needed that answer ASAP. How quickly could you get the
answer?
General FEDDER. Sir, within an hour we could go to the standard
base supply system, which is our current retail level supply inventory, and identify by stock number where those radio parts
Mr. ANDREWS. And you have a high degree of confidence that
would be right?
General FEDDER. Yes, sir.
Mr. ANDREWS. Good.
General FEDDER. Yes, sir.
Mr. ANDREWS. Admiral, what if I wanted to know how many
cases of water we have on Navy ships at this moment, could we
know that?
Admiral ARCHITZEL. I would go to the supply system to get that
answer. But in terms of what I would tell youwithin our aviation
and logistics environment, our automated logistics environment,
today in the Naval Supply programwithin the naval enterprise,
we are very able to extract what equipment we have and what

17
ECPs are onsorrywhat do we have to have, what the inventorywhat parts and pieces we have and need.
Mr. ANDREWS. Could you get that answer for us pretty quickly?
Admiral ARCHITZEL. Yes, sir.
Mr. ANDREWS. High degree of confidence again?
Admiral ARCHITZEL. I do. Absolutely.
Mr. ANDREWS. And, General, you and I talked the other day a
little bit about this. But if we wanted to know how many of those
clamshells we have in Iraq and the degree of disrepair or repair
they are in, how quickly could you get that answer?
General STEVENSON. Sir, the number, easy. In a matter of a
quick inquiry. The condition, I would have to go ask. And that just
takes time because
Mr. ANDREWS. So we dont have a database that exists necessarily about the condition of the assets at all times?
General STEVENSON. Not when it is in the hands of the user. And
that is part of our problem. I mentioned the architecture of our current systems.
Admiral ARCHITZEL. There is another aspect, if I could, sir. It is
the value of that system, too. So that is part of what we have to
have for audit readiness. And I think that is a concern we are all
going to have to come back with. We can do that, but it will be very
manual intensive.
Mr. ANDREWS. I really appreciate you saying that, Admiral, because one thing we have learned from our panels of witnesses is
that there is a real difference here between the quantity of the
number of things you have and the value of them. And the value
process is a subjective process, as well as an objective one, which
means that producing financial statements for the military is a sui
generis project. I dont think it is quite like producing financial
statements for a retail store or a homebuilder because, A, you dont
really know the market value of goods because some dont have a
market value. And, B, you dont know their utility because they are
in far-flung places around the world and what not. So we do appreciate the complexity of the problem.
I think this has been an excellent panel doing excellent work,
and I appreciate each of you. Thank you.
Mr. CONAWAY. Let me ask one other question. I want to make
sure our witnesses get their moneys worth for the preparation that
was done. Thank you for whatever it is you guys did to come here
today and put that together. Leadership is key at every single
level. Are we far enough along in this process that when your replacements show up and somebody moves into those slots, that the
forward momentum is such that it is going to happen or what is
it that you are looking for to make sure this process does get completed when there is a change of leadership? General Mitchell, you
mentioned the other day you have got enough skin in the game
that you own some of this, you really want to make it happen. So
how do each of your organizations make sure that new leadership
has the same understanding of how important this is and that we
dont lose any ground just because we changed the top person?
General STEVENSON. Sir, I think in our case we have got the design work done and that is really the key, because all we have got
to do now is implement what we have designed, and I think we

18
have irreversible momentum toward that end state. Now, it could
get interrupted by a lack of resources and certainly we are counting on being able to continue to make the investments we need to
make. It is fully funded in our program. But, you know as well as
I do that could get interrupted in any year. But absent that, I
think we are on a path toward irreversible momentum to get it
done.
Admiral ARCHITZEL. Sir, I think it is fundamental to everything
we do in the military when you look at command structures and
how we do things. Measure my performance, not where I am in
NAVAIR today. Come back in a year and tell me how NAVAIR is
doing and I will tell you how I did in command. So it is a reflection
of what we instill and what we pass through. This is a team effort.
It is not one carried by one individual by any means. I dont have
the background or the knowledge to do this alone. So we rely on
everyone. I am absolutely confident that it will be enduring.
General FEDDER. Mr. Chairman, in the logistics environment at
the execution level, the continued ability for an airman to make
sure that inventory is right, that they store it right, that they stock
it right, all of those are again fundamental parts of what we do in
logistics. But to capture the momentum that we have going towards ensuring audit readiness, we have included in the Inspector
General system a special interest item to reconcile what we are
doing at unit level that is going to drive us to audit readiness. We
have captured it in our logistics assessment systems, performance
measures for civil service members, as we talked about a little bit
earlier, things like policy.
But I would say in addition to all of those measures, the continued DOD leadership focus on this and certainly the interests and
involvement of Congress and your panel here to make sure that we
continue down this path will make a big difference.
Ms. SMITH. I think it goes back to making sure that the culture
of the entire organization is focused on the priorities and the strategy, and I think we have done that pretty well in the DFAS world.
We havent finished pushing it all the way down to our lower level
individuals, but our trainees and our accountants that are coming
in the door, the first thing that they are trained on is how do we
get our processes to be better and how do we focus on fixing the
issues with the systems, and so on and so forth.
We have tried to change our culture from fixing the problems at
the top to fixing the problems at the source, all the way down into
the organization. So that is how we are trying to keep it flowing.
Mr. CONAWAY. Rob, do you have anything else?
Mr. ANDREWS. No. Thank you again. I would like to thank the
witnesses for an excellent presentation.
Mr. CONAWAY. I give the witnesses an opportunity to say whatever it is that you wanted to say that we didnt ask or you didnt
get it in your opening statement. Anything that anybody wants to
add for the record?
Again, thank you very much for being here and the meeting is
adjourned. Thank you.
[Whereupon, at 8:55 a.m., the panel was adjourned.]

A P P E N D I X
SEPTEMBER 15, 2011

PREPARED STATEMENTS SUBMITTED FOR THE RECORD


SEPTEMBER 15, 2011

(23)

24

25

26

27

28

29

30

31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

46

47

48

49

50

51

52

53

54

55

56

QUESTIONS SUBMITTED BY MEMBERS POST HEARING


SEPTEMBER 15, 2011

QUESTIONS SUBMITTED BY MR. CONAWAY


Mr. CONAWAY. Your testimony stated the Army will achieve $8 billion in savings
through the fielding of the Global Combat Systems SupportArmy (GCSSA) program. Please explain when and how you will realize these savings.
General STEVENSON. Eight billion dollars is the value of the estimated net benefits from implementing GCSSArmy. Net benefits are the difference between total
benefits and the cost of developing, implementing and sustaining GCSSArmy between now and 2027. Net benefits include inventory reductions, reparables tracking,
costs of reorder (acquisition costs), legacy systems operation and upgrades and productivity enhancements. Benefits slowly begin to be accrued in 2013, with a rapid
increase beginning in 2017 (when legacy systems are shut down) and break even
in 2019.
Mr. CONAWAY. In his testimony, Lieutenant General Mitchell Stevenson indicated
the U.S. Army expects to generate $8 billion in net savings between 2017 and 2027
with the implementation of the Global Combat Support SystemArmy (GCSS
Army). He noted that the savings come from a number of different locations, such
as reductions in inventory, re-order costs, and excess orders and increased efficiencies (e.g. eliminating the need to perform reconciliations between stovepipe systems). This situation is not unique to the U.S. Army. What financial benefits/costs
savings does your Service expect to generate as a result of implementing ERPs?
Please explain what additional tangible benefits you expect to see as a result of
using ERPs.
Admiral ARCHITZEL. The Navy has conducted extensive analysis of realized and
expected benefits due to the implementation of Navy Enterprise Resource Planning
(NERP). Our analysis has resulted in quantifiable inventory reduction and legacy
system retirement metrics. In addition to metrics that can currently be quantified
with a high degree of confidence, the Navy also expects to realize tangible benefits
from NERP in terms of enabling and sustaining cost effective audit readiness
through improved financial controls by FY 2017.
Inventory Savings across the FYDP (FY1217) equal $276M. Savings have been
documented in PBIS as a Navy Working Capital Fund reduction. Inventory Cost
Avoidance Post FYDP (FY1823), defined as costs that would have been incurred,
but will be avoided as a result of Navy ERP, equal $456M. (See attachment 1 on
page 60.)
Legacy System Retirement Savings across the FYDP (FY1217) equal $350M.
Savings have been documented in PBIS as a Navy Working Capital Fund Reduction.
Legacy System Retirement Cost Avoidance across the FYDP (FY1217), defined as
costs that would have been incurred, but will be avoided as a result of Navy ERP,
equal $436M. Legacy System Retirement Cost Avoidance Post FYDP (FY1823), defined as costs that would have been incurred, but will be avoided as a result of Navy
ERP, equal $618M. (See attachment 2 on page 61.)
Total Savings from Inventory Reduction and Legacy System Retirement: $626M
Total Cost Avoidance from Inventory Reduction and Legacy System Retirement:
$1,510M Total Savings & Cost Avoidance: $2,136M

(59)

60

61

62
Mr. CONAWAY. In his testimony, Lieutenant General Mitchell Stevenson indicated
the U.S. Army expects to generate $8 billion in net savings between 2017 and 2027
with the implementation of the Global Combat Support SystemArmy (GCSS
Army). He noted that the savings come from a number of different locations, such
as reductions in inventory, re-order costs, and excess orders and increased efficiencies (e.g. eliminating the need to perform reconciliations between stovepipe systems). This situation is not unique to the U.S. Army. What financial benefits/costs
savings does your Service expect to generate as a result of implementing ERPs?
Please explain what additional tangible benefits you expect to see as a result of
using ERPs.
General FEDDER. We expect to realize approximately $2.84B in net savings from
our ERP investments over the period from 20172027. Like the Army, savings will
come from a number of business elements. Savings come from eliminating thousands of system interface requirements and hundreds of system modernization efforts. The Air Force will reduce or eliminate contract support requirements, maintenance costs, and upgrades for hundreds of core legacy systems that are technically
obsolete, not well integrated, lack necessary internal controls, are costly to operate,
and drive manual rework and reconciliation. By reducing the amount of time Airmen spend on administrative processes, more time will be available to devote on
tasks directly supporting the warfighter.
The AF has three ERPs that are part of our target environment. These are the
Defense Enterprise Accounting and Management Systems (DEAMS), the Expeditionary Combat Support System (ECSS), and the Air Force Integrated Personnel
and Pay System (AFIPPS). DEAMS provides the Air Force with a transactionbased general ledger, which is the foundation for auditable financial statements and
replaces nine legacy systems. This capability enables accurate and timely financial
statements, accurate budget forecasting, and enhances our ability to reduce unliquidated obligations and accounts receivable by $1.67B from 20172021. ECSS will
streamline the supply chain management process in the Air Force and is scheduled
to replace 240 legacy core logistics and financial systems and 564 interfaces with
an estimated 10-year net benefit of $0.67B. ECSS savings estimates have been revised downwards as a result of current program performance, and may increase
with successful program implementation. AFIPPS will serve over 500,000 military
members via a single, seamless personnel and pay solution for the Air Forces Active
Duty, Reserve, and Guard components. AFIPPS will retire 20 legacy information
technology platforms, and save more than $0.5B in system operation costs during
the lifecycle. AFIPPS will reduce todays 85,000 annual pay cases by 75% and improve payroll timeliness from 93% to 97%.
Mr. CONAWAY. As the agency that provides financing and accounting services to
the Department of Defense, the Departments transfers to ERPs has a direct impact
on DFAS and its ability to do its job.
a) What challenges are DFAS experiencing as a direct result of the Departments
transitions to ERPs?
b) What is DFAS doing to address these challenges?
c) On the other hand, what benefits/costs savings has DFAS seen and expect to
see as a result of the ERPs being implemented by the military services?
Ms. SMITH. a) DFAS is working diligently with the Military Services and Defense
Agencies to implement the Enterprise Resource Planning (ERP) systems. Full software maturity is an evolutionary process and the ERP out-of-the-box functionality
in many cases does not include the full operational capability of the legacy systems
being replaced. Legacy systems matured over decades to reach full operational capacity. Similarly, incremental product enhancements are needed within the ERP environment to reach full capability. As one of many users of the ERP systems, DFAS
is operating within risk tradeoff decisions that the ERP functional sponsors and Programs Managers (PM) must make regarding cost, schedule, and performance. When
performance risk is accepted for cost and schedule priorities, operational users experience ERP implementations that do not effectively meet mission needs or are easily
integrated into current operational business practices. ERP systems can also inadvertently reinforce the organizational status quo, rather than contribute to significant organizational change when implemented due to cost, schedule, and scope constraints. Finally, regardless of the amount of planning, testing, and Business Process Reengineering (BPR), challenges are not always realized and correctable until
the system is in production. Coupled with the risk tradeoffs are the challenges of
both complexity and size of the DOD. The DOD involves complex functions to execute its mission, creating a vast scope to deliver full operational capability. DFAS
challenges arise when not all mission essential capabilities of the legacy systems are
included by the ERP at implementation, thereby requiring the sustainment of legacy

63
systems concurrently with ERPs. Another contributing factor is that FM requirements are only one of the ERP capabilities and priorities being implemented. There
are many sets of requirements competing for priority: Human Resources, Acquisition, Real Property, Logistics, Personnel & Readiness, and FM. When FM requirements are not met, system capability gaps exist. To address these gaps, DFAS utilizes manual workarounds or other interim processes pending the identification,
prioritization, and implementation of the needed FM requirements.
b) To tackle these challenges, DFAS continues to create better ways to conduct
business and improve the efficiency and effectiveness of ERPs. DFAS is identifying
essential information required for the successful integration of the ERP systems into
the DFAS mission during and post-implementation of ERP systems. For each system implementation, DFAS is coordinating, collaborating, and integrating with the
ERP Program offices to identify, and prioritize functions and processes to increase
the efficiency of the ERPs. DFAS advocates end-to-end testing (E2E) methodology
to ensure system interoperability, verifying the overall process is integrated and
flows correctly throughout the systems. In ERP post-implementation environments,
Joint Solutions Teams (JSTs) are established to create and manage a centrally
maintained database of DFAS ERP post-implementation issues and lessons learned,
with a goal to develop shared solutions to common problems. The intent is to also
define and articulate DFAS priorities for future system development and to concentrate on resolving issues that will provide the largest return for DFAS and its
customers. Common DFAS issues identified across an application (e.g., SAP, ORACLE, etc.) can also be elevated directly to ERP software vendors to elicit a vendorbased solution, such as the current 3 percent income tax withholding mandate. In
addition, there are also post-implementation opportunities to optimize the ERP systems to both maximize inherent system capabilities and facilitate process improvements. DFAS is focusing on ERP optimization to perform BPR, implement incremental product enhancements to the ERP systems, and leverage additional features
within the applications to enable business transformation. This effort goes hand in
hand with the culture of process improvement embedded within DFAS. ERP systems are very complicated software packages that support entire organizational activities, and DFAS is working in collaboration with our customers to address these
system challenges and move forward.
c) To date, the benefits that DFAS has seen include increased and strengthened
internal controls, improved business practices, and increased reliability of financial
data. The ERPs have standardized and streamlined our business processes, provided
a single source for financial management information, and increased transparency
and accuracy of transaction level data allowing for more timely and better decision
making. Through these implementations, DFAS, in partnership with our customers,
has made progress towards changing our systems, processes, and workforce to move
us closer to improving financial management practices across DOD and achieving
audit readiness. As ERPs continue to be fielded, we expect to achieve the benefits
of integrating business applications and functions to provide consistent, single
source data which can be traced and validated from the beginning of the transaction
entry to the financial statements. Other benefits include more efficient and streamlined business processes, increased compliance with the Federal Financial Management Improvement Act (FFMIA including uniform use of the United States Standard General Ledger (USSGL), and implementation of Standard Financial Information Structure (SFIS) a common business language to support information and data
requirements for budgeting, financial accounting, cost/performance management,
and external reporting across the DOD enterprise. ERPs provide more efficient data
collection capabilities and an infrastructure to support more timely responses to
auditors data requests, and standardized financial reporting across DOD, thereby
reducing the cost of auditability. In the future years, we expect to realize cost savings from legacy system retirements. DFAS, in conjunction with our customers, will
continue to embrace the challenges and opportunities that exist with implementing
new systems and maximize the benefits derived in order to reach the goal of financial improvement and auditability.